Impact Of Brexit On Information Technology (IT) Stocks By Sharekhan

‘Brexit’; Indian IT sector to be hit by cross–currency headwinds: The people of UK have voted to leave the European Union (EU) through a referendum held on June 24, 2016. The so-called ‘Brexit’ turned out to be a nightmare for the currency markets, with the GBP touching a low of $1.32 and the Euro touched $1.09 after the verdict was announced. The GBP and the Euro managed to recover to $1.39 and $1.11, respectively. Overall,compared to FY2016 average, GBP was lower by 8%, while the Euro remains flat. The top five Indian IT companieshave an exposure of 23-29% to Europe, on a reported basis. As far as the UK is concerned, TCS has an exposureof 15.8%, Infosys 6.6%, Wipro 11% and Tech Mahindra 10.8%. The current depreciation of 8% in GBP translates broadly into a revenue impact of 1.1% for TCS, Infosys (0.55%), Wipro (1%), HCL Tech (1.2%) and Tech Mahindra(1%). Additionally, any further depreciation in the Euro will have an adverse impact on these companies’ USDrevenues. In our Mid-cap universe, Firstsource Solution (FSL) has 37% revenue exposure to the UK, which will have cross-currency impact of close to 3.5% for the company.